8.11.5  International Penalties

Manual Transmittal

August 14, 2012

Purpose

(1) This transmits revised IRM 8.11.5, Penalties Worked in Appeals, International Penalties.

Material Changes

(1) Revised IRM to reflect new organizational titles resulting from the Appeals 2012 Alignment Project.

(2) Updated IRM to include editorial changes.

Effect on Other Documents

This IRM supersedes IRM 8.11.5 dated 11/2/2010.

Audience

Appeals

Effective Date

(10-01-2012)


Kirsten B. Wielobob
Director, Specialty Operations

8.11.5.1  (08-27-2010)
International Penalty - Chapter 61 Appeal Procedures

  1. This manual section provides pre-payment appeal rights for all assessed international penalties under IRC Chapter 61:

    • accelerated pre-payment appeal rights will be available for Category 1 Taxpayers,

    • non-accelerated pre-payment appeal rights will be available for all other taxpayers hereinafter designated as Category 2 Taxpayers.

  2. This document limits accelerated Appeals pre-payment review of International penalties to Category 1 Taxpayers.

  3. See IRM 8.11.5.2 for a list of the penalties the Category 1 Taxpayer is eligible for as part of the accelerated appeals process.

  4. See IRM 8.11.5.3 for a list of the penalties a Category 2 Taxpayer is eligible for under the non-accelerated appeal process.

8.11.5.2  (08-27-2010)
International Penalty - Accelerated Appeals Consideration

  1. This section provides Accelerated Appeals pre-payment review of International penalties for Category 1 Taxpayers.

8.11.5.2.1  (08-27-2010)
Category 1 Taxpayers - Accelerated Appeals Pre-Payment

  1. Accelerated Appeals pre-payment review of International penalties for Category 1 Taxpayers.

  2. Category 1 Taxpayers are taxpayers that during an examination have been assessed an international penalty described in IRM 8.11.5.2.2 below and are either:

    1. taxpayers with assets totaling $100 million or more, or

    2. any other taxpayers that have been specifically designated by mutual agreement between Compliance and Appeals (because such designation is in the best interest of tax administration).

      Note:

      A penalty will be considered assessed during an examination if it is assessed for the purpose of obtaining information necessary to complete the related income tax examination.

8.11.5.2.2  (08-27-2010)
International Penalty Types Eligible for Accelerated Appeals Consideration

  1. Category 1 Taxpayers can elect to appeal the following international penalties on a post-assessment, pre-payment basis as part of the accelerated appeal process:

    • IRC 6038(b) – Failure to provide information with respect to certain foreign corporations or partnerships — Form 5471 and Form 8865,

    • IRC 6038A(d) – Failure to provide information or maintain records with respect to certain foreign owned - U.S. corporations — Form 5472.

    • IRC 6038B(c) – Failure to provide information relating to transfers or exchanges to foreign persons (corporations after 1984 and to partnerships after 8/5/1997) — Form 926 and Form 8865, (transfer to foreign entities)

    • IRC 6038C(c) – Failure to provide information or maintain records with respect to foreign corporations engaged in U.S. business —Form 5472 (foreign company with USTB)

    • IRC 6038D- Failure to provide information with respect to foreign financial assets.

    Hereinafter referred to as "section 6038 series penalties" .

  2. Only Category 1 Taxpayers who have been assessed an international penalty during an examination are eligible for the accelerated process.

  3. If the Category 1 Taxpayer elects accelerated pre-payment consideration of these penalties, it will be the taxpayer's only opportunity to contest that penalty before Appeals. Therefore, if the Category 1 Taxpayer disagrees with the results of an accelerated appeal, the taxpayer will not receive any additional Appeals consideration before or after paying that penalty.

  4. If the Category 1 Taxpayer is eligible for accelerated consideration and does not appeal the above international penalty before payment on an accelerated basis, the taxpayer may dispute the penalty before Appeals under standard claim procedures following payment.

  5. If a Category 1 taxpayer is eligible for accelerated consideration and is not provided an opportunity to appeal the international penalty during the examination on an accelerated basis, the taxpayer may dispute the penalty before Appeals post-assessment, pre-payment, non-accelerated basis under standard Appeal procedures.

8.11.5.3  (08-27-2010)
International Penalty - Non-Accelerated Appeals Consideration

  1. This section provides non-accelerated Appeals post-assessment pre-payment review of International penalties under standard Appeals procedures.

8.11.5.3.1  (08-27-2010)
International Penalty Types - Non-Accelerated Appeals Consideration

  1. Category 2 Taxpayers can elect the following international penalties on a post-assessment, pre-payment basis:

    • IRC 6038 series penalties assessed at any time except for such penalties assessed during the examination against taxpayers described in IRM 8.11.5.2.

    • IRC 6038 series penalties assessed at the conclusion of the examination against taxpayers with assets totaling $100 million or more.

    • IRC 6039E(c) - Failure to provide statement concerning resident status.

    • IRC 6039F(c)(1)(B) - Failure to file information relating to gifts from foreign persons, Form 3520.

    • IRC 6039G(d) - Failure to provide tax return statement for year of termination by individual losing US citizenship, Form 8854.

  2. If a Category 2 Taxpayer appeals these penalties on a pre-payment basis, the case will be forwarded to Appeals under normal case closing procedures once assessments have been completed and prior to payment, and it will be the taxpayer's only opportunity to contest that penalty before Appeals. Therefore, if the Category 2 Taxpayer disagrees with the results of the appeal, the taxpayer will not receive any additional Appeals consideration before or after paying that penalty.

  3. If the Category 2 Taxpayer does not appeal the international penalty before payment, the taxpayer may dispute the penalty before Appeals under standard claim procedures following payment.

8.11.5.4  (10-01-2012)
Overview of Accelerated Appeals Procedures - International Penalties

  1. Generally, international penalty cases originate in Compliance (Large Business and International (LB&I), Tax Exempt/Government Entities (TE/GE), Small Business and Self Employed (SB/SE)), or through SB/SE or Wage & Investment (W&I) information returns penalty programs.

  2. Accelerated Appeals Procedures (AAP) are available as outlined in IRM 8.11.5.1 .

  3. When Compliance initiates an assessment action for one of these penalties during the examination, the taxpayer or their authorized representative can:

    • file a protest with Compliance requesting an accelerated Appeals hearing of the penalty,

    • provide documents and arguments supporting their position.

  4. Upon receiving the Category 1 Taxpayer's protest, Compliance will:

    • prepare a rebuttal to the protest

    • contact the Appeals Technical Specialist to determine where in Appeals to send the taxpayer's case file with the disputed international penalty issue(s)

    • flag the case file as an “International Penalty AAP case”

    • forward the case file to Appeals

  5. Appeals will recommend an appropriate resolution based on the hazards of litigation and merits of the issue within 120 days of receipt by Appeals.

8.11.5.5  (10-01-2012)
Appeals Coordination of Accelerated International Penalty (AAP) Cases

  1. Once the case has been identified as an accelerated appeal, Compliance will contact the Appeals Technical Specialist for information on where to send the case. A list showing the Technical Specialists can be found on the Appeals Case Routing page. See the "International" tab on the Appeals Website.

  2. Compliance will take action to suspend/stay all Collection activity before sending the penalty case file to Appeals.

  3. The penalty case file will contain the applicable items as outlined in IRM 20.1.1.3.5.1(3).

  4. The AAP case will be assigned/referred to an Appeals Technical Specialist.

8.11.5.6  (10-01-2012)
Appeals Technical Specialist Responsibilities for AAP Cases

  1. The Technical Specialist facilitates the expeditious case assignment, coordination, and resolution of AAP International Penalty cases within Appeals.

  2. Within 2 business days of Compliance contacting Appeals, the Technical Specialist will take the following actions:

    • contact the appropriate Appeals Team Manager (ATM) to identify the ATCL or Technical Specialist who will be assigned the case considering the following:

    If Then
    IRC 6038 series penalties involves an assigned CIC/IC case contact the assigned ATCL, who will initiate a request for a Technical Specialist
    Unassigned CIC/IC case contact an ATM in ATCL Operations to determine case assignment, who will initiate a request for a Technical Specialist
    All other IRC 6038 penalty cases contact the International ATM based on the taxpayer’s geographic location.

    • Identify the APS Unit responsible for establishing the case file on ACDS

    • Notify Compliance where to send the case file, including the address and ATM's name to ensure prompt handling of the case

    • Send a secure email to APS Manager, the employee assigned the case and their ATM with the following information:

      1. Taxpayer's Name, address and TIN

      2. Power of Attorney's (POA) Name and address

      3. Tax Periods

      4. Statute Date for each tax period

      5. IRC Penalty Code Section(s)

      6. Dollar Amount of Penalty for each Tax Period

      7. Date of the protest

      Note:

      This information will be used to create and assign the case on ACDS.

  3. Maintain a log for accelerated international penalty cases received. The log will include:

    • Taxpayer's name

    • Date Compliance notified Appeals a protest was received

    • Name of assigned ATCL or Appeals Technical Specialist

    • Date the case was assigned

    • ACDS closing date

    • Date any adjustments were made

8.11.5.7  (10-01-2012)
Appeals Officer Procedures- Accelerated International Penalty Cases

  1. International penalty AAP cases are high priority cases.

  2. Appeals will complete consideration of international penalty AAP cases within 120 days of receipt by Appeals.

    • For team cases, the ATCL and Technical Specialist are jointly responsible for meeting the 120-day timeframe.

    • For non-team cases, the Technical Specialist and the ATM are responsible for meeting the 120-day timeframe.

8.11.5.7.1  (10-01-2012)
Appeals Officer Receipt Procedures - Accelerated International Penalty Cases

  1. Within 5 business days of receipt of the case file, the appropriate ATCL and/or Technical Specialist will take the following actions:

    • Verify that the penalty was assessed and update the statute as warranted.

    • Verify tax periods and dollar amounts.

    • Mail the uniform acknowledgement letter to the taxpayer and/or authorized representative .

    • Verify the accuracy of the information on ACDS and complete a meaningful and thorough preliminary review of the case.

    • Verify the ACDS feature codes AI, IT and IC are on the system. If the feature codes are missing, update the system through CARATS.

    • Check the IDRS command code TXMOD to be sure collection activity is suspended

    • Enter the CARATS code CR-NR to show actual receipt of the case.

    • If ACDS changes are required, submit to APS requesting expedite action using the ACDS Update Request Form via secure email to the ACDS Mailbox for your location.

  2. To promote consistency in resolving penalty disputes, the Technical Specialist will prepare the ACM after considering any applicable information from the Technical Specialist prior to any substantive resolution discussions with the taxpayer/representative.

  3. The ATCL and/or Technical Specialist will monitor the case for collection activity and take action to ensure any further collection activity remains suspended while the case is pending before Appeals.

  4. Generally, conferences will be held in Appeals offices. Conferences may be offered at sub-offices or other IRS-staffed posts-of-duty that are not temporary or part-time locations where timely handling of the case is not impacted by scheduling at the alternate location. Appeals will decide where to hold conferences. The amount in dispute is not an important factor in approving another conference site.

  5. If possible, resolve the case in one conference. Communicate and coordinate any delays with your ATM and the Technical Specialist.

8.11.5.7.2  (10-01-2012)
Appeals Officer Closing Procedures - Accelerated International Penalty Cases

  1. Assemble the Appeals Case Memorandum (ACM) and related closing documents.

  2. The ACM should:

    • be brief, concise and succinct,

    • clearly explain or support the resolution recommended

      Note:

      See IRM 8.2.2, Appeals Case Memo Procedures, for general information on preparing an ACM.

  3. Within 5 business days of reaching resolution, the ATCL and/or Technical Specialist

    • will prepare the closing documents (Form 5402, the ACM, and any appropriate agreement forms)

    • where appropriate, obtain ATM approval of the resolution; and forward a copy of the ACM to the Technical Specialist

  4. Form 5402 should include the following instructions to APS:

    • Compliance address where a copy of Form 5402 and ACM will be sent,

    • The following statement “EXPEDITE CLOSING REQUIRED --- ACCOUNT ADJUSTMENTS MUST BE DONE IMMEDIATELY” in the remarks section.

  5. Within 2 business days of receipt, the ATM will forward the case to the local APS for closing.

8.11.5.8  (10-01-2012)
APS Procedures - Accelerated International Penalty Cases

  1. Expedited processing from receipt notification to closing is required for such a case.

  2. Generally, the case will be created on ACDS based on receipt of the email from the Technical Specialist.

8.11.5.8.1  (10-01-2012)
APS Receipt Procedures - Accelerated International Penalty Cases

  1. Appeals will complete consideration of section 6038 series penalty cases within 120 days of receipt. Therefore, special case receipt procedures are necessary.

  2. The Processing Team Manager (PTM) will immediately assign a Tax Examiner to create and assign the case on ACDS. The email from the Appeals Technical Specialist is the source of the information for creating the ACDS record.

  3. APS will follow general guidelines in IRM 8.20.5 for establishing cases on ACDS with the following exceptions:

    ACDS Field Accelerated International Penalty (only) Note: See IRM 8.11.5.2
    Type code I = income
    MFT Code • 55 - IMF (individual)
    • 13 - BMF (business)
    Feature Code AI, IT and IC
    Date Received (earlier of) • Date of the email sent to the Technical Specialist
    • Date received by APS or AO
    REQAPPL Date of the Appeals hearing request
    Notes - include the following statement Intl Penalty Case IRC (enter the code section(s) included IRM 8.11.5.1.1.
    AIMS Indicator E (exempt) These cases are not on AIMS.
    Statute Code • Penalty has been assessed: ASESD
    • Not Assessed: Use statute date of the return which generated the penalty - MM/DD/YYYY
    Penalty Amount Amount taken from Form 8278

  4. If APS receives the international penalty case in error, immediately (no later than one day from receipt of the case in Appeals) take the following actions:

    • Research ACDS to see if the case is established on ACDS

    • If the case is on ACDS, send the Accelerated International Penalty case file to the assigned ATCL or Technical Specialist.

    • If the case is not established on ACDS, contact the Technical Specialist immediately:

      1. let them know you have the case,

      2. obtain the name of the ATCL or Technical Specialist for assignment,

      3. create the case on ACDS, and;

      4. forward the administrative file to the assigned ATCL or Technical Specialist.

8.11.5.8.2  (08-27-2010)
APS Closing Procedures - Accelerated International Penalty Cases

  1. Expedited processing is required for these cases.

  2. All adjustments must be made within 5 business days of receipt of the case in APS.

  3. Use general closing guidelines for additional ACDS updates required at closing. See IRM 8.20.7, General Closing Procedures.

  4. The ACDS Closing Codes for these types of cases are as follows:

    ACDS Closing Code Description
    14 penalty fully sustained
    15 penalty fully conceded
    16 penalty compromised

  5. Prepare the closed office file as outlined in IRM 1.15.10, Appeals Records Control Schedule.

  6. APS will send a copy of the Form 5402 and ACM to the Compliance location shown in the remarks section.


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